What is a 'Global Macro Strategy'

A global macro strategy is a hedge fund or mutual fund strategy that bases its holdings — such as long and short positions in various equity, fixed income, currency, commodities and futures markets — primarily on the overall economic and political views of various countries or their macroeconomic principles. For example, if a manager believes the United States is headed into recession, he might short sell stocks and futures contracts on major U.S. indices or the U.S. dollar, or seeing big opportunity for growth in Singapore, might take long positions in Singapore's assets.

BREAKING DOWN 'Global Macro Strategy'

Global macro funds build portfolios around predictions and projections of large-scale events on the country-wide, continental and global scale, implementing opportunistic investment strategies to capitalize on macroeconomic and geopolitical trends. Global macro funds are considered among the least-restricted funds as they generally place any type of trade they choose using almost any type of security.

General Global Macro Fund Types

There are various generalized types of global macro funds that exist, most of which aim to profit on systemic and market risk factors. Discretionary global macro funds construct portfolios at the asset-class level based on a top-level view of the global markets. This type of global macro fund is considered the most flexible as managers can go long or short with any type of asset anywhere in the world.

Commodity trading advisor (CTA) global macro funds use various investment products but rather than creating portfolios based on top-level views, these funds use price-based and trend-following algorithms to help construct portfolios and execute the fund's trades.

Systematic global macro funds use fundamental analysis to build portfolios and execute trades using algorithms. This type of fund is essentially a hybrid of discretionary global macro and CTA funds.

Global Macro Strategies

Global macro funds generally use a combination of currency-based, interest rate-based and stock index-based trading strategies. Within the context of currency strategies, the funds typically seek opportunities based on the relative strength of one currency to another. Funds monitor and project economic and monetary policies around the world and make highly leveraged currency trades using futures, forwards, options and spot transactions. Interest rate strategies usually invest in sovereign debt, making directional bets as well as relative value trades. Regarding stock index strategies, global macro funds make country-specific directional bets on market indices using futures, options and exchange-traded funds (ETFs). Commodity index trades are also included in this category. Certain global macro funds employ strategies focused on only emerging market countries.

RELATED TERMS
  1. Macro Accounting

    Macro accounting is the compilation of national accounts, or ...
  2. All Weather Fund

    An all weather fund is a fund that tends to perform reasonably ...
  3. Hedge Fund Manager

    A hedge fund manager is an individual who oversees and makes ...
  4. Fund Category

    A fund category is a way of differentiating mutual funds according ...
  5. Relative Value Fund

    A relative value fund is a hedge fund that attempts to profit ...
  6. Flexible Fund

    A flexible fund is a mutual fund or other pooled investment that ...
Related Articles
  1. Investing

    Macro Funds Struggle, Even With Trump Rally

    Despite expectations of success in the new year, macro funds have struggled to deliver.
  2. Investing

    4 Strategies Only Hedge Funds Dare Use

    Learn why investing strategies employed by hedge funds may result in steep losses and are not appropriate for most retail investors.
  3. Financial Advisor

    Microeconomics Vs. Macroeconomics

    Economics is divided into two broad categories: micro and macro. Find out what the difference is between them and where they overlap.
  4. Investing

    Just How Different Are Hedge Fund Investing Strategies?

    Before investing in hedge funds, be sure to consider all the facts.
  5. Investing

    The Rise Of The Hedged Mutual Fund

    Discover these growing funds, which were previously unavailable to the average investor.
  6. Investing

    8 Fund Types to Use in a Recession

    When the economy blows up, these funds offer some protection from major losses.
  7. Investing

    The 4 Best American Funds for Growth Investors in 2016

    Discover four excellent growth funds from American Funds, one of the country's premier mutual fund families with a history of consistent returns.
RELATED FAQS
  1. How Are Global and International Funds Different?

    In English, 'global' and 'international' tend to be used interchangeably—hence the confusion. Read Answer >>
Hot Definitions
  1. Gross Margin

    A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. ...
  2. Inflation

    Inflation is the rate at which prices for goods and services is rising and the worth of currency is dropping.
  3. Discount Rate

    Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
  4. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  5. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  6. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
Trading Center